Inter-Branch Services | Employee Cost
The Authority of Advance Ruling (AAR) in the state of Karnataka, in its order in Columbia Asia Hospitals Private Limited (the Applicant) dated 27 July 2018, made critical observations concerning the taxability of employee cost at a corporate office under Goods and Services Tax (GST).
The Applicant runs a chain of modern hospitals across India. Accounting, administration and maintenance of IT system are centralised and managed by the corporate office. While the corporate office was recharging the cost of sourced inward supplies like rent on immovable property, consultancy services, communication services, etc. to each hospital on the basis their turnover, the employee cost was not recovered.
The issue before the AAR was whether the cost incurred towards employees working at the corporate office was to be recharged and subjected to GST?
The views of the AAR that employer-employee relation must exist at distinct person level overturns the contemporary view that such employer-employee relation is relevant only at entity level.
While the ratio by an AAR is binding only on the Applicant, this ruling, if applied by the tax authorities in other cases will result in an upheaval as entire cost including employee cost incurred at the corporate / head office could become susceptible to GST. It may also impact entities with multi-locational presence, whether engaged in making taxable supplies or not.
- Dinesh Agrawal (Executive Director), Ankit A. Shah (Principal Associate) and Pranay Sahay (Senior Associate)
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